A much followed tax break improvement is inching toward becoming a reality.
A proposed tweak to the state and local tax (SALT) deduction — capped at $10,000 since 2018 — could soon offer relief to taxpayers in high-tax states.
If passed, the Senate’s version of the One Big Beautiful Bill of America (OBBBA) would give taxpayers a temporary boost in their ability to deduct SALT payments, especially for those who’ve felt the sting of the cap since the Tax Cuts and Jobs Act (TCJA) took effect. And as lawmakers inch toward a deal, taxpayers — and their accountants — are watching closely.
What is the SALT income tax deduction cap?
Under the TCJA, the SALT deduction was capped at $10,000 annually — including the combined total of property taxes, income taxes, and sales taxes. That cap, still in place today, is set to expire at the end of 2025.
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But since its enactment, it has disproportionately affected residents in states with high property values and/or income tax rates. Think:
- New York
- California
- New Jersey
- Connecticut
- Massachusetts
- Maryland
- Illinois
In these states, many middle—and upper-middle-income households have long paid more than $10,000 in state and local taxes.
Related: How the IRS taxes Social Security income in retirement
As a result, despite the higher standard deduction that was part of TCJA, some families have been unable to fully deduct those expenses on their federal tax returns—a costly outcome.
House vs. Senate proposals: Comparing SALT deduction changes
Both the House and Senate versions of the OBBBA seek to expand the SALT deduction, but with key differences.
In the House proposal, the cap would rise to $40,000 for married couples, phased out for households earning over $500,000. The new cap would last until 2034.
Related: Social Security income tax deduction clears critical hurdle
Not all lawmakers are on board. Rep. Nick LaLota (R-N.Y.), for instance, told Axios he was a “no” on a temporary deal. “I need $40K for my constituents, and it has to be $40K forever,” he said.
The Senate version takes a different approach. It proposes a temporary SALT cap increase from 2025 through 2029, followed by a return to the $10,000 cap:
- 2025: Cap rises to $40,000
- 2026: Adjusted to $40,400
- 2027–2029: Cap increases annually by 1%
- 2030 and beyond: Cap returns to $10,000
For married individuals filing separately, these caps are halved.
High-Income taxpayers face phase-down of SALT deduction
The Senate plan includes a phase-down for high earners, starting in 2025. Here’s how it works:
- The benefit phases down once your modified adjusted gross income (MAGI) exceeds $500,000 (or $250,000 for married filing separately).
- The reduction equals 30% of the amount your MAGI exceeds the threshold.
- Importantly, the SALT cap cannot fall below $10,000 — even for the wealthiest filers.
This means high-income households would still see some benefit from the temporary cap hike, just not the full amount.
Why the SALT deduction increase matters for taxpayers
“For a lot of people, this cap is the difference between taking the standard deduction and itemizing deductions,” said Michael Lofley, a financial adviser with HBKS Wealth Advisors. “If they itemize, they now get some additional tax benefit for other deductions, like charitable giving or mortgage interest.”
Related: Medicare recipients face a growing problem
While some taxpayers — particularly small business owners — have used pass-through entity taxes (PTETs) to bypass the cap, W-2 earners such as corporate executives don’t have that option. For them, this proposal offers real financial relief.
Standard deduction increases under Senate tax plan
The Senate tax bill includes more than just SALT deduction relief. It also proposes permanent extensions of the TCJA’s higher standard deduction amounts. And for the years 2025 through 2028, it adds an extra boost:
- $1,000 for single filers
- $1,500 for heads of household
- $2,000 for married couples filing jointly
That means in 2026, the standard deduction could be:
- $16,000 for singles
- $24,000 for heads of household
- $32,000 for married joint filers
After 2026, these amounts would adjust with inflation.
Bigger Social Security tax deduction for seniors
Retirees also have reason to pay attention. The Senate bill includes a larger senior tax deduction — $6,000 per eligible filer aged 65 or older (up from $4,000 in the House bill). This enhanced deduction would apply through 2028 and would phase out for incomes above:
- $75,000 (single filers)
- $150,000 (married filing jointly)
How many taxpayers actually itemize deductions?
Before the TCJA, about 31% to 32% of taxpayers itemized deductions. But after the law took effect in 2018, that figure dropped significantly:
- 2018: 11% to 11.5%
- 2020–2022: Just 9% to 10%
If the SALT cap is temporarily expanded, even if the standard deduction increases, more taxpayers — especially in high-tax areas — may once again find it beneficial to itemize deductions on their federal tax returns.
“If Congress meets President Trump’s July 4th deadline for passing the final bill, taxpayers will soon be able to update their 2025 tax projections,” says Jean-Luc Bourdon, CPA. “This could prompt some taxpayers to revise their estimated quarterly payments or tax withholdings for the remainder of the year.”
Related: Workers struggle with one big problem when they retire
